Dow Rallies 300 Points on Fed News

August 6, 2008

Surprise, surprise: Just as we were expecting, the Fed held rates steady.

Wall Street could barely contain itself when the news came out–the result was a whopping 330 point jump in the Dow, the biggest one-day gain since April 1st! The Fed's comments–coupled with another slide in crude oil prices–sparked the day's rally.

Here's what happened: The Fed maintained its benchmark federal funds rate at 2%. As I said yesterday, futures markets indicated there was a less than 30% chance the Fed would tamper with rates. The central bank showed a united front on the issue, although some officials expressed concern that keeping rates unchanged would allow inflation to run unchecked. Policymakers have been hard-pressed to juggle slow economic growth and inflation.

But the Fed's remarks reassured anxious investors: "Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports." These comments encouraged thrifty investors to buy up a storm the rest of the afternoon, leading to the Dow's 300 point run-up.

Further fueling the rally was oil's slide to $119 a barrel on expectations that Tropical Storm Edouard would spare the oil rigs in the Gulf of Mexico. Crude oil futures for September closed out the day at a three-month low, as investors expressed concerns that a slowing global economy would trigger further declines in oil demand. The dollar also regained some lost ground, which perpetuated another drop in commodities prices.

Stocks on my Blue Chip Growth Buy List cashed in on the rally–in fact, the Buy List as a whole was up for the day! Stocks that got caught up in the market's mad dash higher were Southern Copper (PCU) and Vimpel Communications (VIP), each gaining more than 4.5%!

As I've said before, my Buy List is poised to really take off the second half of the year. So don't delay– sign-up for Blue Chip Growth and watch our fundamentally superior stocks rise to the top!